Brazil's rate setters nudged borrowing costs down by a quarter-point to 13.75%. Every board member backed the move, which economists surveyed by Bloomberg had universally anticipated. It is also a rare pre-election cut - the last time they did that was 20 years ago - and it lifts the year's cumulative easing to 1.25 percentage points.
Bloomberg Economics called the step small and expected, with no fresh hints on the path ahead. Their Brazil economist Adriana Dupita said they still see two more reductions this year and think the policy rate at the end of 2027 will sit below where markets and the analyst consensus currently project.
In their statement, officials said both the headline index and core gauges have been losing steam, yet remain above the 3% target. Within the policy horizon the bank emphasizes, its central scenario places inflation near 3.2% during the first quarter of 2028.
August's consumer prices were up 4.22% from a year earlier, slightly below the Bloomberg survey median of 4.27%. Month over month, the cost of living fell 0.32%, according to the national statistics agency on Sept. 11. Activity is cooling, too: the central bank's index showed a 0.22% drop in July from June, a second straight decline. Labor and credit data point the same way - Brazil added 58,568 formal jobs in July, the smallest monthly gain this year, and delinquencies on personal loans climbed to their highest since 2009.
"The set of indicators released since the last meeting shows a gradual moderation of economic activity, particularly in more cyclical sectors, albeit at a resilient level," policymakers wrote.
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Polls point to a close contest, indicating President Luiz Inácio Lula da Silva and Senator Flávio Bolsonaro are essentially tied. The first round is scheduled for Oct. 4, with a likely runoff three weeks later. With debt and spending front of mind, any slippage in Brazil's fiscal credibility could weaken the real and push up prices, making additional rate cuts tougher even as growth softens.
The committee's message was measured: "The current scenario, marked by heightened uncertainty, deanchoring of expectations, and elevated risks surrounding the reference scenario, requires serenity and cautiousness in the conduct of monetary policy." They added, "The Committee will continue to monitor developments in the scenario in order to keep monetary policy adequately restrictive to ensure convergence to the inflation target."
Just hours earlier, the Federal Reserve raised US rates by a quarter-point and signaled one additional hike this year. A stronger dollar that often follows can add another layer of price pressure for Brazil. Beyond that, officials flagged external risks that have intensified - the unresolved conflict in Iran has kept oil jittery, and El Niño threatens food costs. XP Inc.'s chief economist, Caio Megale, remarked, "Global shocks have intensified." "And the domestic fiscal outlook is unclear - bear in mind that tonight's was the last policy decision before the presidential elections." Leonardo Costa at ASA summed up the near term: uncertainties linger around the vote and US rates, but the base case is another cut in November.
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